What Is the IRC 6651(a)(2) Failure to Pay Penalty?

Internal Revenue Code Section 6651 addresses the failure to pay taxes. This penalty applies when a taxpayer files their tax return by the deadline but does not pay the full tax liability shown on that return by its original due date. This common penalty is assessed by the Internal Revenue Service (IRS) and is calculated based on the amount of unpaid tax, accruing over time until the balance is paid.

How the Failure to Pay Penalty is Calculated

The failure to pay penalty is 0.5% for each month, or part of a month, that taxes remain unpaid. However, this rate can double. If the tax remains unpaid for more than 10 days after the IRS issues a notice of intent to levy, the penalty increases to 1% per month. This percentage is applied to the net tax amount due, which is the total tax liability minus any payments and credits. The penalty accumulates monthly until it reaches its maximum of 25% of the unpaid tax.

For example, if a taxpayer owes $10,000 and pays it three months and one day after the due date, they would be subject to the penalty for four full months. The calculation would be 0.5% of $10,000 ($50) multiplied by four months, for a total penalty of $200.

A specific rule applies when a taxpayer is subject to both the failure-to-file and the failure-to-pay penalty in the same month. The failure-to-file penalty is typically 5% per month. When both apply, the failure-to-file penalty is reduced by the amount of the failure-to-pay penalty for that month, effectively capping the combined penalty at 5%.

Grounds for Penalty Removal

The IRS can remove, or abate, the failure-to-pay penalty if the taxpayer can demonstrate a valid reason. The two primary grounds for removal are establishing reasonable cause or qualifying for the First-Time Abatement administrative waiver.

Reasonable cause is established if a taxpayer can show they exercised ordinary business care and prudence but were still unable to pay by the due date. Common examples the IRS may accept include death or serious illness of the taxpayer or an immediate family member, unavoidable absence, or the destruction of the taxpayer’s records due to a fire or natural disaster. A taxpayer must demonstrate that the circumstances made it impossible to pay, not just inconvenient.

The IRS also offers a First-Time Abatement (FTA) waiver for taxpayers with a clean compliance history. To qualify, a taxpayer must have filed all required returns, paid or arranged to pay any tax due, and have no penalties for the three prior tax years. This relief is an administrative concession and is often simpler to request than a reasonable cause defense.

A taxpayer who enters into an installment agreement with the IRS may also see a reduction in the penalty rate. While the agreement is in effect, the failure-to-pay penalty rate is typically reduced from 0.5% to 0.25% per month.

Requesting Penalty Abatement

A taxpayer must formally request an abatement from the IRS. When making a request, be prepared to provide your name, taxpayer identification number, the tax year in question, and the notice number.

One option is an oral request by calling the IRS phone number listed on the penalty notice. The taxpayer or their authorized representative can speak directly with an IRS agent to request abatement, which is a common method for the First-Time Abatement policy.

A more formal approach is a written request sent to the address shown on the IRS notice. The letter should clearly state it is a request for penalty abatement and explain the reasons, referencing either reasonable cause or the FTA criteria.

The most formal method is filing Form 843, Claim for Refund and Request for Abatement. In Line 7 of the form, the taxpayer must provide a detailed explanation of the grounds for their request. Be sure to attach any supporting documentation, such as medical records, that can substantiate a claim of reasonable cause.